US & World Daily Markets Financial Briefing 01-12-2006

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Stocks little changed in early trading

NEW YORK - Stocks were little changed on Friday ahead of a critical poll on manufacturing sentiment and data on monthly auto sales.
   
In the opening minutes, the S&P 500 eased .03 of a point to 1,400.60 and the Nasdaq 100 dropped 1.02 points to 2,430.75. The Dow industrials gained 1.44 points to 12,223.37.
   
On Thursday, U.S. stocks recovered from early losses after an unexpectedly weak reading of a Chicago-area manufacturing gauge. The Dow industrials slipped 4.8 points, the Nasdaq Composite edged off 0.5 of a point and the S&P 500 rose 1.1 points.
   
Construction spending data in the U.S. for October is due out. Federal Reserve Chairman Ben Bernanke, Chicago Fed President Michael Moskow and Richmond Fed President Jeffrey Lacker also are due to speak.
   
The auto sector will be in focus with the release of November U.S. sales. Much like last month, the domestics are expected to have generated gains in unit sales from a year ago, as November 2005 provided an easy comparison.
   
Unit sales last year got pulled ahead into the summer months, with a record number of buyers taking advantage of employee-pricing promotions to purchase their cars a few months earlier than they had planned.

Stocks in focus
   
General Motors also will be in focus on reports that Kirk Kerkorian has completely sold out of the stock.
  
McData Corp. may decline after the storage-networking technology company reported a widening of loss.
  
Cheesecake Factory may rise after reporting two quarters of earnings after a delay for stock option-granting practices.

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Dollar flounders on speculation ECB willing to tolerate sharp euro gains

LONDON - The dollar slipped further amid speculation that the European Central Bank is willing to tolerate sharp gains in the euro's exchange rate
   
Analysts cited a newswire report quoting an unnamed ECB official as saying that the euro zone economy can sustain a much sharper rise in the euro exchange rate against the dollar, to 1.40-145 usd, with some even suggesting it could go beyond 1.50 usd.
    
Analysts expect the Institute for Supply Management's index of manufacturing activity to rise to 52.1 in November from 51.2 in October, but after yesterday's very poor Chicago PMI reading many now expect that the reading could come in below forecasts.
   
If the ISM comes in below 50 -- which would indicate a contraction in activity --, this could put the lid on any lingering hopes that the Federal Reserve could opt for one more interest rate hike, Shah reckons.
     
The euro earlier hit a fresh 20-month high of 1.3284 against the dollar, with the market dismissing a weaker-than-expected but nevertheless still strong euro zone manufacturing PMI survey this morning.
   
The pound meanwhile was trading just above the 1.97 usd level after earlier hitting fresh 14-year highs of 1.9570 usd, levels not seen since the currency fell out of the European Exchange Rate Mechanism in 1992.
   
Elsewhere, the yen remained very weak, particularly against European currencies, with the euro earlier reaching new record highs of above 154 yen and the pound briefly rising above the 229 yen level following weak Japanese CPI data this morning.
   
Data out overnight showed Japanese core CPI inflation rose by 0.1 pct in October from a year earlier, below expectations for a 0.2 pct rise and supporting the view that the Bank of Japan will raise interest rates later rather than sooner.

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Frankfurt - At 2.35 pm, the DAX 30 index was up 26.07 points or 0.41 pct at 6,335.26, having moved between a low of 6,316.61 and a high of 6,360.67 so far this session.
   
The MDAX was 74.69 points or 0.85 pct higher at 8,854.85, while the TecDAX rose 1.06 points or 0.15 pct at 698.24. The DAX futures contract was at 6,339.5, up 19.5 points, while bund futures were down 0.07 at 118.41.
 
Among Frankfurt's blue chips, Lufthansa took off, rising 0.91 eur or 4.84 pct to 19.71 after Morgan Stanley released an extremely positive broker note and simultaneously raised its target to 25 eur from 18 eur while maintaining its 'overweight' stance on the shares.

Morgan Stanley told its clients there are now at least three reasons to buy Lufthansa shares.

Among the day's decliners, TUI fell the sharpest, losing 0.190 eur or 1.19 pct to 15.790 as Morgan Stanley reiterated both its 'overweight' stance and its target of 16 eur per share on the logistics and tourism conglomerate.
   
In a note to clients, Morgan Stanley said it sees a wide range of scenarios from the upcoming mid-term strategy and balance sheet meeting on Dec 15, but none of them are very positive.

Paris - At 12.38 pm, the CAC-40 index was up 14.77 points or 0.28 pct at 5,342.41. Of the stocks in the index, 23 were higher, 16 were lower and one was unchanged. Volume was 2.18 bln eur.
   
The SBF-80 index was up 24.03 points or 0.37 pct at 6,473.09, and the SBF-120 index was up 10.09 points or 0.26 pct at 3,900.37. On the Matif, December CAC-40 futures were trading up 16.0 points or 0.30 pct at 5,348.0.

In the economic background, the French manufacturing PMI for November rose to 56.5 from 56.3 in October. Economists had expected it to stay at the October level.
   
EDF held most of its early gains after surging at the opening after a ruling by the French constitutional court on the Gaz de France-Suez merger that criticised state limits on tariffs.
   
A London-based dealer said there could be "massive upside" to EDF shares if the price caps are abolished, "hence the excitement this morning". EDF was up 2.75 eur or 5.68 pct at 51.15.

GDF, which could also benefit from the court's tariff comment, fared less well on the market because of other implications of the ruling, which said the merger can proceed but cannot take effect until EU energy markets are liberalised next July 1.
   
Analysts said the delay opens new uncertainties by pushing the merger back until after next spring's French presidential elections, in which the merger's Socialist opponents have a shot at victory. GDF was down 0.44 eur or 1.35 pct at 32.16.   

Suez was straddling the situation, up 0.06 eur or 0.17 pct at 36.31. Analysts said that if it cannot merge with GDF, Enel is another possibility.
   
EADS was also among the key blue-chip gainers, up 0.83 eur or 3.74 pct at 23.04. Its Airbus unit said the A380 successfully finished 18 days of around-the-world flight tests. But the more critical factor was an ongoing EADS board meeting that is is expected to approve the launch of the A350 project.

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Asian shares close mixed, Tokyo higher on consumer price data

HONG KONG - Shares across the Asia-Pacific region closed mixed, with Tokyo shares higher on positive consumer price data.
   
Tokyo shares closed higher, led by the futures markets, with benign consumer price data for October alleviating concerns the Bank of Japan may still raise interest rates within the year.
   
The market trimmed intraday gains as profit-taking set in, with a firmer yen weighing on exporters. Trading activity next week will likely remain paced by Wall Street's performance although a series of Japanese data could help steer direction. Dealers see the Nikkei index moving between 16,100 and 16,500 points.
   
The Nikkei 225 Stock Average closed up 47.45 points or 0.29 pct at 16,321.78, off the day's high of 16,376.30. For the week, the index surged 3.7 pct. The broader TOPIX index of all first-section issues rose 1.87 points or 0.12 pct to settle at 1,604.90, off a high of 1,610.69. Over the week, the index gained 4.3 pct.
         
Australian shares closed lower as investors turned to profit taking after the wider All Ordinaries Index hit a record high on Thursday.
   
Investors saw added impetus to square positions ahead of tonight's ISM manufacturing survey, with a possibility the data could be below the critical 50 level, which would be a further signal the US economy is slowing heading into 2007.
   
The S&P/ASX 200 lost 54.2 points or 0.99 pct to close at 5,427.9, once again retreating from the record close of 5,491.6 set on Nov 7. The benchmark index closed off the day's low of 5,424.7 and below the high of 5,495.7. Over the trading week the key index was down 35.7 points or 0.47 pct.
   
Hong Kong shares were lower in afternoon trade on profit taking. At 3.25 pm the Hang Seng Index was down 176.07 points or 0.93 pct at 18,784.10.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on continued fund inflows with energy, property and machinery stocks buoyed. The Shanghai A-share Index added 2.84 points or 0.13 pct to 2,208.93 and the Shenzhen A-share Index was up 4.43 points or 0.86 pct at 518.49, a new 50 month high.
   
Seoul shares closed slightly higher on foreign investors' interest, with POSCO hitting a new record on a report of a possible capital tie-up with China's Baosteel. The KOSPI index closed up 2.15 points or 0.15 pct at 1,434.36, after moving between 1,428.24 and 1,436.80. It ended the week with a gain of 12.63 points.
   
The Nihon Keizai Shimbun earlier reported, citing Baosteel chairwoman Xie Qihua, that China's leading steel company may approach Nippon Steel and POSCO to buy stakes if it lists on overseas markets.
   
Next week, the KOSPI index is expected to move in the 1420-1,460 point range on further strength in the US and Japan.

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Gold dips after rising above 3 months highs earlier on plunging dollar: Oil falls off 2-mth highs

LONDON - Gold edged lower after hitting its highest point in more than three months earlier, as the dollar recovered some lost ground but remained near historic lows against its major competitors.
   
At 12.42 pm, spot gold, which earlier hit a high of 648.60 usd an ounce -- its highest point since Aug 10 -- was quoted at 644.60 usd, down from the 645.50 usd level seen in late New York trade yesterday.
   
UBS Investment Bank analyst John Reade said gold was retreating because of the "small rally in the dollar", adding trade is very thin as participants are "waiting to see what happens when US gets in".
   
Gold revisited yesterday's more than three month highs in early European trades after the dollar again hit 20 month lows against the euro and went back down to a 14 year low against the sterling.
   
The precious metal usually trades counter to the dollar as it is seen as an alternate investment to the US currency. Also, a weaker dollar makes gold cheaper for holders of other currencies.
   
Silver, which touched six month highs of 13.97 usd an ounce earlier, was at 13.89 usd, down from against 13.96 usd at the close yesterday. Other precious metals were also weaker.
   
Platinum fell to 1,168.00 usd an ounce against 1,177.50 usd in late New York trades yesterday, while palladium slipped to 328.50 usd against 329.00 usd in late trades yesterday.

Oil prices fell, after climbing to their highest point in more than two months yesterday, as dealers bet OPEC is less likely to cut output again at its upcoming meeting if prices hold onto recent gains.
   
At 10.19 am in London, front-month Brent North Sea crude contracts for January delivery were down 15 cents at 64.11 usd a barrel, after surging 1.19 usd to settle at 64.26 usd yesterday.
   
At one point yesterday Brent hit 64.77 usd, the highest point since Sept 19. Meanwhile, front-month New York light sweet crude contracts for January delivery fell 21 cents to 62.93 usd a barrel, after gaining 67 cents to close at 63.13 usd yesterday.
   
"Its a long time till the (OPEC) meeting -- two weeks, a lot can happen (but) my guess is if prices are above 60 usd when OPEC meets it will be more difficult for them to cut," said Bache Financial broker Christopher Bellew.
   
OPEC meets in Abuja, Nigeria on Dec 14 to consider whether it should extend last month's 1.2 mln bpd output cut, which was made in a bid to shore up oil prices that have fallen more than 20 pct since peaking above 78 usd in July.
   
Yesterday, Venezuelan President Hugo Chavez said OPEC members had reached a consensus to keep oil prices at 50 usd a barrel. The weekly average for the OPEC basket price this week currently stands above 56 usd a barrel.
   
However, the country's oil minister, Rafael Ramirez, said yesterday the cartel could cut production by as much as 500,000 barrels a day when it meets again later this month.
   
Meanwhile Algeria's oil minister, Chakib Khelil, said the cartel could agree to further output cuts at the next meeting but not implement them until February next year.

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